As announced in the 2016 Budget and confirmed in the 2016 Autumn Statement, the government has published draft legislation (together with explanatory notes) to implement its reforms of the tax and NICs treatment of termination payments. In particular, draft Finance Bill and National Insurance Contributions Bill clauses have been published to:
These changes will take effect from 6 April 2018.
The draft legislation implementing the first change is complex and many employers will be disappointed that the government has decided to press ahead with this “simplification” measure.
Briefly, these new provisions require employers to split a termination award between amounts treated as earnings and amounts benefitting from the £30,000 exemption. Statutory and contractual redundancy pay (to the extent that contractual redundancy pay does not exceed the statutory amount) will always benefit from the £30,000 exemption.
HMRC has taken on board some of the comments made by respondents to the consultation on the original draft legislation. For instance, the concept of expected bonus income has been omitted and post-employment notice pay is calculated by reference to basic pay disregarding overtime, commissions and so on, and the proposed use of the 12-week period to calculate post-employment notice pay has been dropped. However, an award of compensation for unfair dismissal is no longer automatically within the £30,000 exemption.